Why is Brexit important?

It may not be recognised quite how many of the world’s international commercial disputes are litigated in the UK, mainly in London. While difficult to give a percentage, it is generally agreed that London is far and away the most important centre for the hearing of such disputes.

It is estimated that the total annual revenue generated by legal services in the United Kingdom (including Scotland) in 2017 was in excess of £35 billion and that litigation in England involving foreign clients was in excess of £4 billion.

The current position

One of the core values of the EU is that there should be commonality, so to speak, between the legal systems of all of the members of the EU. This is dealt with through a series of conventions and other treaties entered into by the various countries that now form the EU. Some of the key treaties are:

  • The Brussels Convention and Recast Brussels I Regulation – the aim of these is that a claimant who has obtained a judgment from a member state, may enforce that judgment in any other member state without issuing separate proceedings in that other member state. The Recast Brussels I Regulation now governs the enforcement of judgments and the question of jurisdiction
  • The Lugano Convention, which governs the enforcement of judgments between what used to be called the EEA countries – namely, Iceland, Switzerland and Norway – and those states that were EU members prior to 2004 (including Poland).
  • Rome I and Rome II determine the applicable law of a dispute between parties in the EU. Rome I deals with contractual disputes and applies where there is no express choice of law clause in the contract. This will be the case, for example, in oral or implied contracts. If there is an express choice of law clause, then that will apply. If not, Rome I provides that a contract will be governed by the law of the country with which it is most closely connected. Rome II deals with non-contractual disputes, that is to say, tort or delict. Rome II introduced a change in the law of most countries in that it states that the applicable law for the resolution of non-contractual disputes is determined on the basis of where the damage occurs, or is likely to occur, regardless of the country, or countries, in which the act giving rise to the damage occurs.

What happens if there is an agreement?

At the time of writing, there is no concluded deal as to what will happen after the UK leaves the EU. Under the draft withdrawal agreement of 14 November, the EU and the UK have agreed that the provisions that I refer to below – covering jurisdiction, judgments, proper law, lawyers, insolvency, etc. – will all remain the same as they were when the UK was part of the EU. Accordingly, it is not necessary to say anything about that, other than that if there is such an agreement, things will continue as before.

What may happen after Brexit if there is no agreement?

The government has set out its intentions in a paper, the draft political declaration, but these are only intentions. The government accepts that in the event there is no deal, there will be no agreed EU framework for ongoing civil judicial cooperation between the UK and EU countries. The UK would become a third party country, and this would mean that EU countries would not consider the UK to be covered by EU rules.

It is perhaps worth saying that there are also issues as to what will happen on 29 March 2019, when the UK formally leaves the EU. Without an agreement, it is likely that the existing regime will no longer apply to cases pending before the courts on 29 March 2019, as EU rules on the recognition and enforcement of judgments will cease to exist in the UK, and will no longer apply between the UK and EU. Furthermore, it is not clear whether a case decided in the UK on or before 29 March 2019 under the current system would be recognised and enforced in another EU country after 29 March 2019. This is just to make life even more complicated.

The concern is that if companies are no longer able to enforce UK judgments in the EU, even more may take steps to change their jurisdiction clauses in their contracts from the UK to France or Germany. According to a report by Thomson Reuters, 35 per cent of companies surveyed in the UK have already changed, or are considering changing, jurisdiction clauses.1

This will not only have an impact on the volume of litigation in England and Scotland, but will also mean less transactional work, as there will be fewer contracts drafted under English law.

Arbitration proceedings

There is no doubt that insofar as the arbitration of commercial, insurance and shipping matters is concerned, London is head and shoulders above the rest of the world. The vast majority of shipping contracts have arbitration clauses, rather than High Court clauses.

London does have considerable history, with its judicial system, to which I have already referred, and the availability of experienced arbitrators, lawyers and experts. There is also a sophisticated mediation system.

Arbitration is governed by the New York Convention, which basically governs both the jurisdiction and enforcement of arbitrations. A very large number of countries are signatories. The New York Convention operates quite independently of the EU, and is not affected by the Brussels or Lugano Conventions.

Accordingly, Brexit will have no impact on the question of arbitration with respect to either jurisdiction, enforcement or proper law. The UK will remain a party to the New York Convention, as will all EU states, and therefore it will be possible to enforce arbitration awards, as before, in relation to any EU state. Accordingly there will be no change, in effect, to London arbitration business arising from the decision to leave the EU.

What this means for shipping

The majority of shipping contracts are governed by English law, but have arbitration clauses. Accordingly, the decision to leave the EU will have no significant effect on those contracts. However, some shipping contracts do contain a High Court jurisdiction clause, and so may be affected.